5 Ways to Buying a Home after a Bankruptcy

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Typically after recovering from bankruptcy people ask me how long it will take to qualify for a mortgage loan or how long after a bankruptcy to buy a home. Banks and mortgage lenders understand that it is normal for good people to go through financial hardships and that’s why they extend credit opportunities with new mortgage programs after a bankruptcy. It’s not always easy to find them, but there are a handful of banks and mortgage companies that offer affordable financing to people looking to buy a house after bankruptcy.

buying a home after a bankruptcy

Take Advantage of Aggressive Mortgage Programs that Help People Buy a Home after a Bankruptcy.

In the last 10 years, the American dream of buying your own home turned into a nightmare for too many of us. During the housing crunch, more than seven million homes were foreclosed upon, and many Americans ended up in bankruptcy.

There are many misconceptions in the public about bankruptcy. One of the biggest is that you cannot buy a home for at least seven years after you have declared chapter 7 or chapter 13 bankruptcy. This is not the case at all. It is possible to get a mortgage after a bankruptcy if you know where to look.

The most likely reason that this myth persists is that generally, a bankruptcy public record will stay on your credit report for up to seven years. This does not mean that you cannot buy a home again within those seven years.

If you want to buy a house after a bankruptcy it is important that you get a plan. If you are ready to jump back in the housing market and recently declared bankruptcy, we would like to offer you these tips and ideas:

#1 Wait!

As noted above, a bankruptcy can stay on your credit report for up to seven years. This rarely means you are unable to buy a house again fairly soon. Some mortgage lenders are able to approve a client for a new mortgage after bankruptcy as soon as a month.

However, that is more the exception than the rule. Many lenders will be understandably wary of you with a very recent bankruptcy.

After you bankruptcy is discharged, it is a smart idea to wait at least a year until the dust has settled on your financial situation. The smartest thing you can do during this period is to pay all of your bills and rent on time. When you apply for a home loan after a bankruptcy, the lender will see the Chapter 7, 11 or 13 reported by the U.S. District Court. But if you have shown for the last year or two that you are back on your feet financially, they may approve your mortgage after a bankruptcy. Even first time home buyers may be able to get qualified to buy a house after a bankruptcy is discharged.

Also note that even with a recent bankruptcy, there are some credit card companies that may approve you for a credit card. Some recently bankrupt clients report that they were still able to be approved for a $500 credit limit Mastercard or Visa. Others may only be able to get a secured credit card, but this can still be used to build your credit.

#2 Save Money Before Applying to Buy a House After a Bankruptcy

With a recent bankruptcy, you will want to show potential lenders that you have money saved up to put down on a house. You do not necessarily have to put down 20% – that is another myth out there – but the more you have, the easier time you will have getting a mortgage after a bankruptcy.

The Federal Housing Administration or FHA offers 3.5% down payment home loans for people who have at least a 620 FICO score. If your score is lower than that, you would likely need to put down up to 10%. One of the most popular programs we hear about is for an FHA loan after a bankruptcy was discharged 24 months. Learn how much of a home you can afford with a FHA loan today.

If you can show that you have skin in the game, it is more likely that a lender will view your file favorably and give you a mortgage.

Another plus of FHA mortgages with low credit scores is that if you are approved by a lender, the interest rate will often be lower than standard market rates. Buying a house with bad credit scores is always challenging so it’s very important that you get advice from financial companies that have access to mortgage programs, like the FHA.

#3 Shop for a Mortgage After a Bankruptcy

One of the biggest mistakes that many potential home buyers make is to not shop around for a mortgage. This is very important always, but is especially important when you are coming out a bankruptcy. Many subprime lenders will not want to work with you, but a few companies still may. You have to shop around and find a company that offers reasonably priced mortgage for people with bad credit. When you are ready to buy a house after bankruptcy, you will most likely be required to provide traditional income documentation, so that means that a stated income loan will be out of the question.

#4 Check Your Credit Report

You can improve your credit more quickly by getting a copy of your credit report. Be sure that everything is accurate. You will have filings on your credit report about debts that were discharged in your bankruptcy. You want to make certain that nothing that was discharged in the bankruptcy is still showing a due balance. This has been known to happen. Most bankruptcies involve a large number of credit accounts. It is possible for something to slip through the cracks.

#5 Try to Get a Car Loan

A great way to rebuild credit is to get an installment loan, which is most often a car loan. You will have to get a car loan with a higher interest rate, but that is ok. We recommend that you get an inexpensive car and make regular payments on the loan for at least a year.

Typically,those regular payments will raise you score, and will show a mortgage lender that you are a good risk again.

Buying a House in 2019 After a Bankruptcy

It is very much possible to get a mortgage after you have declared bankruptcy. We recommend however that you wait for a while and show that you have reestablished yourself financially. If you wait at least one or two years, you will be able to qualify for a better interest rate.

For example, if a person was approved for a loan for a $200,000 house at 30 years and fixed interest at 4.5%, you would pay $1,013 per month. If you get that same home loan with a 4% interest rate, you would pay only $954 per month. That does not sound like a lot of difference, but over the life of the loan, it’s close to $20,000.

By following the above tips, you will be able to qualify with financing to buy a house after a bankruptcy much sooner than most people realize, and stop paying rent.

bankruptcy home loana

Talk to Experienced Lenders that Know How to Get Your Home Loan Approved After a Bankruptcy.

4 Secrets to Getting Approved for a Home Loan After a Bankruptcy

One of the myths of the last housing crash is that bankruptcy prevents you from buying a home for seven years or more.

This is not the truth. In reality, there are ways you can get approved for a mortgage after a bankruptcy.

Below are some of the secrets to getting approved for a mortgage after a Chapter 7 bankruptcy.

These are important to keep in mind, because even though the economy is strong in 2018, more people, such as some seniors, are filing for bankruptcy.

Rebuilding Credit

The most important thing to do after your bankruptcy is finalized is to begin building your credit again. But you have a bankruptcy. How can you get credit? Actually, there are things you can do to build and get credit in just days after your Chapter 7:

  • You may be able to get a low credit line credit card. There are Master-card and Visa credit cards available for people with bankruptcies with a $500 or so credit line.
  • If you cannot get a regular credit card, you may be able to get a secured credit card. As long as you pay it on time, it will report on time payments to the credit bureaus, thus building your credit.
  • After six or 12 months after the bankruptcy, apply for a car loan. You will probably have to put money down and will have a high rate but paying on time on an installment loan is a key way to build credit quickly.
  • Make payment arrangements for any of your debts that were not cancelled in bankruptcy.
  • Check your credit report regularly for ID fraud and any inaccuracies.
  • Use whatever credit lines you do have and make payments on time. This will help your credit score.

Remember, the most important thing after a bankruptcy is showing you are gaining financial stability again. It is actually financial instability AFTER the bankruptcy that causes more people problems for qualifying for a home loan, than the actual bankruptcy itself. Also remember that you should make every effort to pay every bill on time after your bankruptcy. This will help to raise your score over time.

Timing

It is possible to get a home loan much sooner after a bankruptcy than you might think, but you will still need to wait some time. For conventional mortgages, you generally must wait four years after a bankruptcy and two years after a Chapter 13. But there are other mortgage options out there with shorter waits.

FHA Mortgage

With FHA mortgages, you can qualify for a mortgage in two years after a Chapter 7, and just 12 months after you have made required payments on a Chapter 13 bankruptcy. But you will need to get approval of the bankruptcy trustee on a Chapter 13. You would have to provide a clear explanation of why you filed for bankruptcy. For example, if you had a medical emergency and could not pay your bills, this could be seen as a valid reason. Apply for a FHA mortgage now.

VA Mortgage

If you are active military or a veteran, you can get a VA home loan two years after the discharge of your bankruptcy. While the VA application process can be daunting, it is actually more lenient in some ways because post-bankruptcy credit problems such as a foreclosure do not restart that two-year waiting period. But credit problems after the bankruptcy can affect the rate.

USDA Mortgage

If you live in a rural place outside of a city, you can qualify for a USDA mortgage three years after the bankruptcy is concluded.

There is definitely hope after having a bankruptcy. You can qualify for a home loan in two or three years in most cases. You might be able to qualify after as little as a year for an FHA loan if you can show extenuating circumstances to FHA officials.

References: https://www.incharge.org/bankruptcy/how-soon-can-i-get-a-mortgage-after-bankruptcy/

 

About Dusty Brazil

CA BRE #01780273- Dusty Brazil is a top ranked Realtor with Pacific Sotheby's International Realty. Mr. Brazil has been selling real estate in San Diego for over 10 years and lived in this coastal community his entire life. Dusty is an accomplished surfer who enjoys writing home buying articles when he is not catching waves.